Treasury keeps grip on banks in shake-up

Alistair Darling’s reforms set to inflame tensions between the Bank of England and Whitehall

ALISTAIR DARLING's proposed reforms of banking regulation, to be published next month, will retain a significant role for the Treasury in financial supervision. His proposals will be seen by some as a further sign of tension between the Treasury and the Bank of England.

Both the Bank and the Financial Services Authority (FSA) have called for new tools to be made available for policing the banks. The Bank, which published its Financial Stability Report on Friday, listed a range of new weapons it believed would be necessary. They included a "tax" on bigger and more complex institutions, with more onerous capital and regulatory requirements.

It said that "dynamic provisioning" could help, as used in Spain, where banks are required to hold more capital in good times. But it would need to be used in conjunction with other measures. These could include direct controls on the growth of lending, minimum requirements